[davidweatherall]

I don't understand how you bodge a stable coin startup.

Surely you just mint the tokens in exchange for dollars, and then put ~50% of the dollars in zero risk investments (some form of treasury bonds), and then take the 0.5-1% interest per year as your revenue. Tether currently has $81b marketcap so you could be making $400-800m per year doing basically nothing?

[likpok]

It’s hard to find a bank to take your money, since you’re something that rhymes with money laundering. Tether had a bunch of money stolen from them because the money launderer they used turned out to be a crook.

It also takes a long time to get this going and there are moderately high costs to a minimally viable financial entity (reporting, compliance). A few years ago they only had a couple billion which makes it hard.

And all of that sets aside the allegation that tether has been printing tethers it’s entire life — that it’s basically never been fully backed by dollars.

[mewse]

> something that rhymes with money laundering

Oo, sign me up for some "bunny conjuring", please!

Alternately, "sunny wandering" and "honey squandering" both sound like they could be delightful ways to pass an afternoon. But I can tell you right now that "funny pondering" is hella overrated.

[pjc50]

> Surely you just mint the tokens in exchange for dollars

Step 1: find someone willing to give you dollars in exchange for a token that's guaranteed to be worth something between 0 and 1 dollars.

Step 2: find a bank willing to let you be a money transmitter for millions of anonymous pseudo-dollars whose owner you have no idea of, setting off every single money laundering alarm in the building.

[ckastner]

> Step 2: find a bank willing to let you be a money transmitter for millions of anonymous pseudo-dollars whose owner you have no idea of, setting off every single money laundering alarm in the building.

This was the biggest red flag behind Tether to me, where we are talking about not millions but billions of pseudo-dollars.

The risk profile is beyond anything reasonable that a bank could or would accept. Tether minting $2bn in a week means $2bn cash inflows from mostly people that the bank probably doesn't know, all for what can only be a negligible fee.

[pjc50]

The billions of dollars of _backing_ should show up somewhere. https://twitter.com/dsquareddigest/status/140291428628503347...

> again - who is on the CP desk at Tether? Who is their account manager at Goldman Sachs? Who do they talk to at, say, the GE corporate treasury? Commercial paper is a short term money market that has to be managed and rolled - you can't just buy and hold the bonds anonymously.

Dan's argument is that the alleged size of their holding implies doing a lot of business, which should be being done by humans making phone calls to each other, and the gossip network doesn't seem to be able to locate any such people. Given that there are market participants whose job is e.g. "today I need to sell $100m of three month commercial debt to someone, time to start calling", one of them ought to know who's running the Tether business.

That nobody can see them in the market is a red flag.

[FireBeyond]

Hell, their bank's supposed* Deputy CEO in an interview couldn't even name the two types of banking license that are applicable in the Bahamas, or which one they had, but he knew they had one, and "possibly the other, I'm not sure".

* He was the Deputy CEO according to the interview and his LinkedIn (though there was all sorts of hilarity there, like claiming he graduated HEC Lausanne at 15, and becoming a Professor of Finance somewhere in Lebanon while running multiple funds all over. But after the disastrous interview, he was quickly deleted from the bank's website. And then re-added when people started questioning that. And then removed again when the bank hurried to "revamp" their website (to a WordPress installation, no less, and gaining 15 years of experience in the process).

[jiggawatts]

From what I heard, Tether had invested heavily in "emerging markets" instead of the established US markets, which explains why nobody at Goldman Sachs has dealt with them.

[acdha]

What do you mean by “emerging markets”? Goldman Sachs has tons of people whose entire jobs are dealing with those in the common meaning of the term – they manage dedicated funds for their customers! It seems highly unlikely that they wouldn’t have at least some basic awareness of anyone doing business at that scale.

Given the space and the degree to which they refuse to reveal normal financial information, I assume they’re either directly involved in fraud/money laundering or are treating other cryptocurrency companies’ debt as far more stable than it actually is. This is such a common criticism and there’s no reason why you’d keep it this secretive if the news was good.

[DebtDeflation]

Only if by "emerging markets" you mean Binance (and other crypto companies). Because that is almost certainly the source of any CP that Tether holds.

[pjc50]

Emerging markets? Which of course means that even if they started with $X of collateral a year ago, they're exposed to the wider market crash which is happening and therefore have much less.

[mrep]

Not to mention currency risk. I heard they were invested in china which if they were their yuan are now worth 6% less to get the same amount of USD which customers are expecting USDT to be in.

[FireBeyond]

In 2019, they were claiming $3.5B a week. Even worse.

[thebean11]

Coinbase and Circle were certainly able to pull off both steps for USDC. They require KYC to purchase USDC from them, or redeem USDC for USD. USDC can be traded on the secondary market without KYC.

[closedloop129]

A slightly better strategy:

You do exactly this, but you don't proof it to anybody. Then there is constant doubt and the price can fall down a bit, e.g. to 0.97.

Then, you buy back your stable coins and you make an additional nice profit.

As long as there is no other more trusted stable coin demand will increase again and you will regain your market share.

[ForHackernews]

Great, you've invented a boring old bank. That's not innovation. (Well, technically an unlicensed wildcat bank, but still)

Literally the only new thing about blockchains is an ecologically destructive brute-force solution to the byzantine generals problem. However, it turns out nobody except CS students cares much about that, so they have to dress it up with cartoon apes and web3 buzzwords.

[vineyardmike]

It’s also a bank with low Tx fees and fast Tx at any time of day, anywhere in the world. Something that is bafflingly still hard to find.

[ForHackernews]

Only in the USA. The UK Faster Payments Service transfers between any accounts for free in minutes: https://en.wikipedia.org/wiki/Faster_Payments

The US is actually building their own similar service (based directly on UK FPS), which will be available...eventually https://www.theclearinghouse.org/payment-systems/rtp/institu...

[andy81]

Anyone making $500m/year legit could rug for $20bn+, so they walk away before that point.

Tether have a great business model but seem to spend 90% of their time falsifying reserves instead. It certainly gives the impression they're planning on taking the capital rather than interest. They're already in breach of the NYAG agreement, with three+ more cases pending.

It actually seems like a great project for e.g. Fidelity or Vanguard to set up a mutual fund that doesn't pay interest. With the name recognition it would be immediate #1 stablecoin assuming they offered the same level of audit scrutiny and reserves breakdown as their other products (i.e. 100x anything offered in the cryptocurrency space currently).

[raverbashing]

> I don't understand how you bodge a stable coin startup.

You're assuming "bodging" wasn't part of the plan all along

[myle]

Greediness.